The Full Employment for Regulators Act: Editor/Publisher's Column

Instead of punishing the incompetence of the regulators, Congress provides them with new job opportunities.

It’s official. Richard Cordray is the director of the Consumer Financial Protection Bureau.

Having a permanent director in place is a good thing because it removes some of the uncertainty from the scenario. Now that he is confirmed, it’s unlikely there will be a commission put in place to head up the agency rather than the current single director structure.

I’m a bit surprised that the Republicans gave in so easily. You never know what goes on in those backroom deals. And, while I’ve never met him, everyone I’ve spoken to says Cordray is highly intelligent and has made a demonstrated effort to understand credit unions.

Still, the CFPB could be a great danger to credit unions, which it has already demonstrated with a number of regulations, including the most recent mortgage rules. Perhaps now that he’s officially in office, the CFPB will go after the unregulated entities, such as payday lenders and title-loan shops, in addition to the missteps of the regulated.

It’s very curious how this has all played out. Instead of punishing the incompetence of the regulators, Congress provides them with new job opportunities by creating a new agency, while piling regulations on all of the financial institutions and not just the bad actors.

That philosophy is very short sighted in that it was efficient for dealing with that crisis but does nothing to address the root of the problem, which at its heart was greed and complacency.

The next crisis will just bring more of the same.

The regulatory compliance burden has been an issue raised time and again, but executives at some of the largest credit unions will take it in stride–not that they were happy about it, mind you–as a cost of doing business.

I was recently at CUNA, NAFCU and WOCCU’s annual conferences, and I began hearing more about regulatory burden from executives at larger credit unions as well.

At an address to the National Federation of Community Development Credit Unions recently, NCUA Chairman Debbie Matz pointed out that because there had been high turnover among examiners, it was going to remind them all that small and community development credit unions are different, including their members and business plans.

That makes sense because one would expect it to be more expensive to run a smaller credit union, particularly one in a distressed area.

At the same conference, Timothy Segerson, deputy director of the agency’s Office of Examination and Insurance, said that the agency would, however, be looking more closely at internal controls. This is excellent news. While fraud cases at small credit unions generally do not cost a lot of money, they frequently result in losses significantly larger than the assets of the credit unions. The dollars aren’t the only thing at risk when these fraud cases are reported. Every single credit union’s reputation is on the line.

Consider former Taupa Lithuanian Credit Union CEO Alex Spirikaitis, who was on the run from authorities at deadline. He made major headlines, first when the $24 million credit union was liquidated, and second for a police standoff (of sorts) at his home. Considering most consumers have no clue what a credit union is, this will be the first or at least most prominent exposure for many of them.

As far as reputational risk is concerned among consumers, this has no less impact than the Texans or Telesis situations. Public perception can be mightier than the dollars.

It’s also a perfect example of why credit unions need to get their positive stories in the community press more. As people become more familiar with them and understand what they do, that story can help counteract those moments the industry is less than proud of.

Staying out of the press or ducking questions from reporters when situations like Taupa Lithuanian happen are not options in today’s highly connected world. The better relations you have with your local press, as well as national, and previous coverage will help your credit union specifically and the industry as a whole.

Finally, I want to make a plug for collaboration, which has been on my mind lately and was also the subject of a webcast we held last week. During the World Council of Credit Unions, Launi Skinner, CEO of FirstWest CU in British Columbia, and Eric Dillon, CEO Conexus CU in Saskatchewan shared their collaborative efforts as part of a discussion on balancing leadership decisions to benefit members and the credit union.

For example, a group of credit unions in Canada pooled some money and their heads of IT to develop new and better technologies that help the credit unions and the members. Regulatory compliance is another area in which they have collaborated. Credit unions are a minute portion of the financial sector and must use one of the greatest resources the cooperative charter allows: Each other.